NGX Set For Recovery Ahead Of Seasonality, Historical Trends, As 2021 Winds Down
Market Update for the Week Ended December 10 and Outlook for Dec 13-17
Trading activities in the second week of December was mixed and bearish, resisting further decline on improved buying interests in blue-chip companies and dividend-paying stocks amidst selloffs in Dangote Cement, slow down in momentum investing amidst high traded volume and positive market breadth after the benchmark NGX All-Share Index formed a hammer candlestick on a bearish trend that signaled a high possibility of a reversal in the new week.
The mixed sentiment as the bulls and bears battled for dominance during the week, ahead of year-end seasonality, historical trends, and patterns associated with December being the last month of the year is underway. There are also positive sentiments across major sectors of the market except for the industrial goods, indicating the presence of buyers in the market and an ongoing portfolio rebalancing.
Trading metrics for the week revealed high position-taking activities in the financial services sector, especially banking stocks being the most consistent dividend-paying in the market, especially given the fact that the majority of stocks in this sector are highly undervalued. The financial sector is poised for a very strong rally into the end of 2021 and early 2022 as revenues and earnings for Q4 2021 continue to drive an upward price trend. The relatively low-interest rates and low cost of funds, as well as the high demand for goods and services, continue to drive economic activities in this last quarter of the year. This was revealed by Stanbic IBTC’s Purchasing Manager Index that expanded to 55.1 points, from 54.8 points reported in October. The positive economic data should drive Q4 results of the financial sector operators close to the levels we saw in Q3 2021, if that happens, we may see a robust rally in the banking and other financial services sector over the next 45 to 60 days.
The strength of the recent rally in the major indexes shows just how powerful the bullish trend bias is right now ahead of the Santa Claus rally and year-end window dressing. Some traders focus on the downside risk associated with the fourth wave of covid 19 with omicron variant, and uncertainty in the system. I have, however, continued to focus on the strength of the sectoral indexes ad various sector trends that show real opportunities for profits.
However, we envisage a mixed trading pattern due to bargain hunting activities in dividend-paying stocks amid intermittent profit-taking activities. That notwithstanding, we advise market players to position in fundamentally sound stocks with positive technicals and sentiments as market fundamentals and liquidity continue to look up in the face of oil price oscillation at the international market, while the nation’s external reserves and the local currency keep fluctuating.
Technically, the NGX index’s action on a weekly time frame reveals mixed sentiments, as ADX remained above 20 points at 36.94, just as the money flow index was down at 61.38 points, revealing a contraction in money flow into the equity space. These are indications that confirm the daily move and volatility, as the NGX index has rebounded on a strong support level of 41,684 basis points which signaled retracement on the daily chart, but remains bearish on a weekly time frame after breaking down 42,137.26 points to the confirm the decline. So, we must wait to see what happens in the new week as analysts expect historical trends and seasonality’s to play out.
We reiterate the point that the high traded volume, during the week is an indication that institutional investors are buying and the volume that took the market up is still very intact. The heavy volume on mixed activities shows that smart money is gradually returning to the market, amidst the unclear yield direction in the fixed income market that remains a plus for the equity market as inflation remain high in the midst of low yield and negative real returns
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Movement Of NGXASI
The NGX index had a mixed performance during the week, recording two trading sessions of the down market and three of upmarket to resist decline and slowdown the losing momentum that brought the total loss for the week to 0.68%, compared to the previous week’s 2.63% loss. This performance was driven by selloffs in bellwether stocks like Dangote Cement, UACN, Custodian Investment, and May & Baker.
In all, the composite index shed 284.94 basis points, closing the period at 41,882.97bps, after touching an intra-week low of 41, 527.26bps from its highs of 42,446.44bps. The week opened at 42,167.91bps on selling sentiment and position taking in dividend-paying stocks; just as market capitalization fell by N149bn, closing at N21.854tr, compared to the previous week’s N22.003tr, which also represented a 0.68% depreciation in value.
The top gainers’ table for the period under review was dominated by low and medium-priced stocks which had become the toast of investors, despite the mixed sentiments that were due to positive sentiments for Meyer, Consolidated Hallmark Insurance, UPDC, Ecobank Transnational Incorporated, and Guaranty Trust Holding Company, among others. This was the midst of continued portfolio repositioning on the strength of Q3 earnings reports and positive economic data. It is noteworthy that the NGX Index and price actions revealed the presence of buyers in the market, a situation that reflected on major sectoral indexes.
Market breadth was positive for the week, besides the high traded volume and the expected year-end seasonality and historical trend patterns that are likely to support recovery in the short to long run, as investors increase their positions on a pullback. Advancers outnumbered decliners in the ratio of 35:27, on a mixed sentiment as revealed by investors’ sentiment report showing a 61% sell volume and 39% buy position. Money Flow Index rose to 61.39bps from the previous week’s 66.36 points, an indication that funds exited the market.
NSEASI WEEKLY CHART MOVEMENT
NGX index’s action, on a weekly chart, maintained a bullish pattern despite pulling back on selloffs during the week, reversal is imminent as revealed by the hammer candlestick formation at the end of the week’s trading on a strong support level and high volume traded. The candlestick pattern indicates a bearish outing and that the market is correcting. Also with all eyes on fixed income market yields and oil prices that should further support market fundamentals to attract liquidity to the equity space. This pullback at this point is creating new buying opportunities.
Bullish Sectoral Indices
The performance indexes across sectors were up, except for the NGX Industrial Goods that closed 5.42% lower, while the NGX Banking led the advancers after gaining 5.55%, followed by Energy, Insurance, and Consumer Goods with 1.27%, 1.24%, and 0.11% respectively. Transactions in volume and value terms went up, as investors exchanged 2.63bn shares worth N26.90bn, compared to the previous week’s 1.28bn units valued at N17.34bn. Volume was driven by Financial Services, services, and Consumer Goods, particularly FBN Holdings, Sterling Bank, C/I Leasing GTCO, and Transcorp.
Meyer and Consolidated Hallmark were the best-performing stocks during the week after gaining 50% and 25% respectively, closing at N0.33 and N0.55 per share respectively on market forces. On the flip side, Unity Bank and Dangote Cement lost 15.69% and 10% respectively, at N0.43 and N252.00per share, purely market forces and profit-taking.
Outlook for the week
We expect a mixed sentiment, as investors and bargain hunters take advantage of price correction in fundamentally sound stocks for repositioning, ahead of seasonality and historical trends. It is also noteworthy that funds and portfolio managers continue to take a position on the strength of Q3 numbers ahead of the current financial year-end. For now, many stocks remain within their buy ranges to attract funds into the equity space. Also, investors will continue tracking yields movement in the fixed income market. Also, investors are still observing the interplay of forces in the FX market as the CBN gives a guideline for the new digital currency platform. Last week’s low volume suggests that institutional investors are not selling. It is noteworthy that oil prices rebounded to trade above $84 in the international market; corporate actions, as well as the interim dividend possibilities, are around the corner.
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